After the Defense of Marriage Act was struck down, it created
elation in some circles and consternation in others. While the ruling may ease
some administrative burdens, it also creates some new HR challenges and yet-to-be
answered questions.

By Lin Grensing-Pophal

Thursday, January 2, 2014

At the end of November, the Department of
Labor announced that its wage and hour division would be proposing a rule in
March to revise the FMLA’s
definition of "spouse" in response to the Supreme Court’s United
States v. Windsor case in July 2013, which struck down the Defense of
Marriage Act's exclusion of state-sanctioned, same-sex marriages.

In addition to the impending impact to the
Federal Mandatory Leave Act, the Windsor decision also impacts HR
professionals from a benefit-administration perspective, with many scrambling
to get compliant with their health-and-wellness and retirement-benefit
programs.

Experts say that even organizations that have
already provided benefits to same-sex partners may need to modify plan
documents and administration to address the legal implications of a
"spouse," which is impacted on the state level through the variation
in states where same-sex
marriages are, or are not currently legal.

Many see the events as a bit
of a "double-whammy" at the end of a year in which much of the focus
has been on the Affordable Care Act and its implications. "Many of my
clients are scrambling," says Angie Marie Hubbell, an attorney in the
employee benefits and executive compensation group at Quarles & Brady in
Chicago.

One company that is not scrambling to play
catch-up is Day & Zimmerman, an engineering and
construction, staffing and defense firm with 150 worldwide locations and headquarters in
Philadelphia.

When she joined the firm more than four years
ago, it was already providing domestic partners with "a whole suite of
benefit offerings that they might not find at other places," says Jan
Curran, the company's vice president of compensation and benefits.

And the company's recognition of diversity
pays off with its employees, says Anne Hoban, the company's director of
benefits.

"By recognizing the diversity," she
says, "we actually gain their engagement and we probably have more of
their respect because we’re respecting their lifestyle."

But Hubbell says the coming changes can be
complex -- even for companies that were already providing benefits for domestic
partnerships of the same or opposite sex, such as Day & Zimmerman. Much of
the complexity lies in relation to varying state laws that may or may not
recognize marriage between same-sex partners.

Still, says Hubbell, while acknowledging that
she has some clients that are "fighting this tooth and nail," for the
most part "it’s something that most HR people that I’ve dealt with have
wanted all along."

From a health-insurance standpoint, the
biggest issue is the taxation of health coverage, says Todd Solomon, an employee benefits
partner at McDermott Will & Emery in Chicago.

"Health coverage for same-sex spouses is
no longer taxable from a federal-benefits-plan perspective; that’s a huge
change," he says. It may still be taxable at the state level, though, so
HR professionals need to recognize state variations that may impact them. But,
Solomon adds that "this only applies to same-sex spouses -- it doesn’t
apply to civil union partners and other unmarried partners."

So, to the extent that [employers] don’t know
which of their same-sex partners are actually married, they need to solicit
that information, he says.

The best way to handle this would be to ask
for verification of marital status from all employees -- opposite sex as well
as same sex, he says, as asking for certificates only from same-sex couples may
raise issues of discrimination.

This change took effect September 16, says
Solomon, and tax implications must be reflected in the W-2 statements that
companies will be issuing in January.

Hubbell says that she believes most companies
have already dealt with the healthcare implications, in part because of the
attention the Affordable Care Act already received. "The retirement-plan
side is sort of trailing thereafter, because healthcare reform got so much of
people’s time."

From a plan-document standpoint, amendments
are not likely to be widely needed, says Ronald J. Triche, assistant general
counsel and director of government affairs for the American Society of Pension
Professionals and Actuaries in Arlington, Va.

Most of these plans usually don’t include a
definition of spouse, he says, unless they were individually designed plans, in
which case, he says, "I did see some definitions of spouse to clarify
whether it was a DOMA spouse or a non-DOMA spouse that had benefits being
provided."

The biggest change in regard to retirement
plans is related to beneficiary rights for 401(k) plans, says Solomon.
"Instead of just opposite-sex spouses being the automatic beneficiary
under a 401(k) plan, now a same-sex spouse will automatically be the default
beneficiary," he says.

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That’s fine if that was the intent, but for
those who may have listed someone other than their same-sex partner as a
beneficiary, they now need to either change the beneficiary to their spouse or
get written and notarized spousal consent.

"That’s a big change, and that’s been a
big employee communication issue," says Solomon. "Employers have had
to go out to people and say, if you’re married to a same-sex spouse, here are
the new rules for a beneficiary and here’s what you may need to do."

Pension plans are also impacted as a result
of Windsor. "There are significant rights now for same-sex spouses
that require updates to the forms," says Solomon. That’s because pension
plans are typically paid in the form of a qualified joint survivor annuity and
have pre-retirement survivor annuity rights. "The consent forms and the
election forms under pension plans need to be updated now."

Recently, ASPPA recommended simplified
guidance around the topic to the Employee Benefits Security Administration, as
well as submitted a comment letter to the DOL and the Internal Revenue Service,
and both organizations are expected to be coming out with additional guidance
soon.

What’s taking so long? Triche points to the
government shutdown as a likely factor. "The shutdown slowed everything
down," he says. In addition, he notes, "there are several different
layers of revision and several different people working on things." He
expects comments to be forthcoming by the end of the year.

When this guidance is issued, he says, plan
amendments aren’t likely to be required immediately – the focus will be on
ensuring that plans are administered in accordance with the new rule. "So,
from an administrative point of view," he says, "HR departments
should be treating everybody as married if they’re married."

In both of these areas, the risks to
employers that fail to appropriately make the changes required generally
revolve around lawsuits related to any benefits that were denied, or public
opinion, says Hubbell, noting the controversy and outcry over Chick-Fil-A’s
public statements against same-sex marriage in 2012.Bad press isn’t something
that can be ignored, and it’s not without implications from a recruitment
standpoint, she says. "It could have wide-ranging implications in terms of
losing the applicant pool if you’re in an industry that is trying to attract
talent and something comes out that you are not treating same-sex couples the
same as others. In today’s world that’s a detraction."

Solomon urges employers and their HR advisors
to not just handle these matters behind the scenes, but to communicate with
employees about what they’re doing and why, and assuring them they are being
compliant. "I think going tout to employees and explaining that the
employer is aware that things have happened and aware that the law has changed
and notifying participants of what the changes are is a good best practice, and
I’ve seen a number of companies doing that," he says.

For Day & Zimmerman, communication has
been handled through existing channels, including an LGBT employee resource
group. Curran says that a member of the group came forward as soon as they
heard about the ruling to ask if someone from HR would present the implications
to the ERG.

"Right away, within two to four weeks of
the ruling, a member of my team was making a presentation to this employee
resource group," says Curran.